[Federal Register Volume 81, Number 86 (Wednesday, May 4, 2016)]
[Proposed Rules]
[Pages 26763-26764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10384]



Internal Revenue Service

26 CFR Part 301

RIN 1545-BM77

Self-Employment Tax Treatment of Partners in a Partnership That 
Owns a Disregarded Entity

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 


SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that clarify 
the employment tax treatment of partners in a partnership that owns a 
disregarded entity. These regulations affect partners in a partnership 
that owns a disregarded entity. The text of those temporary regulations 
serves as the text of these proposed regulations.

DATES: Comments and requests for a public hearing must be received by 
August 2, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-114307-15), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
114307-15), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224 or sent electronically, via the 
Federal eRulemaking Portal at http://www.regulations.gov/ (IRS REG-

FOR FURTHER INFORMATION CONTACT:  Concerning the proposed regulations, 
Andrew K. Holubeck at (202) 317-4774; concerning submission of 
comments, or a request for a public hearing please contact Regina 
Johnson at (202) 317-6901 (not toll-free numbers).


Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Procedure and Administration 
Regulations (26 CFR part 301) relating to section 7701. The temporary 
regulations clarify that an entity disregarded as separate from its 
owner (a disregarded entity), that is treated as a corporation for 
purposes of employment taxes imposed under subtitle C, is not treated 
as a corporation for purposes of employing its individual owner (who is 
treated as a sole proprietor) or for purposes of employing an 
individual that is a partner in a partnership that owns the disregarded 
entity. Rather, the entity is disregarded as an entity separate from 
its owner for this purpose. The partners are subject to the same self-
employment tax rules as partners in a partnership that does not own an 
entity that is disregarded as separate from its owner. The text of 
those regulations also serves as the text of these proposed 
regulations. The preamble to the temporary regulations explains the 

Special Analysis

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these regulations, and because the regulations do not impose a 
collection of information on small entities, the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of 
the Internal Revenue Code, this notice of proposed rulemaking will be 

[[Page 26764]]

to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on their impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed rules. All comments will be available at 
www.regulations.gov or upon request. A public hearing will be scheduled 
if requested in writing by any person that timely submits written 
comments. If a public hearing is scheduled, notice of the date, time, 
and place for the hearing will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Andrew Holubeck of the 
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities). However, other personnel from the IRS and the 
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordingkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be amended as follows:


Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.7701-2 is amended by revising paragraphs 
(c)(2)(iv)(C)(2) and adding paragraph (e)(8)(i) to read as follows:

Sec.  301.7701-2  Business entities; definitions

* * * * *
    (c) * * *
    (2) * * *
    (iv) * * *
    (C) * * *
    (2) [The text of the proposed amendment to Sec.  301.7701-
2(c)(2)(iv)(C)(2) is the same as the text of Sec.  301.7701-
2T(c)(2)(iv)(C)(2) published elsewhere in this issue of the Federal 
* * * * *
    (e) * * *
    (8)(i) [ The text of the proposed amendments to Sec.  301.7701-
2(e)(8)(i) is the same as the text of Sec.  301.7701-2T(e)(8)(i) 
published elsewhere in this issue of the Federal Register].

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-10384 Filed 5-3-16; 8:45 am]